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Taxing matters for landlords in 2022

‘Tax doesn’t have to be taxing’ is a favourite slogan of HM Revenue & Customs and it’s true! For many people, paying tax and working out VAT is an aspect of our daily lives that someone else works out on our behalf.

If you’re a landlord or property developer, however, you are classified as a business owner who is responsible for their own tax bill and possibly VAT too. While a good accountant is vital when it comes to filing returns and reducing bills, understanding the relationship between tax, VAT and property before you invest and during a tenancy is key to healthy yields and profits.

This year will see landlords settle into a new tax and VAT pattern, and while we can’t predict what the Chancellor may introduce later in 2022, here are 6 things we do know:

Mortgage interest tax relief changes are in full effect
The tapering of mortgage interest tax relief is complete and from now on, landlords filling in their self-assessment tax return will only be able to offset 20% of their mortgage interest payments against their tax bill.

There’s more time to report & pay CGT
When a landlord sells a buy-to-let property, there is usually CGT (Capital Gains Tax) to pay. This year has already heralded a positive change to how landlords report profits gained from selling additional properties and how long they have to pay the CGT bill. The timeframe has been extended to 60 days, up from the previous 30.

The tax liability notification period may shorten
The Government is keen to boost its coffers and it is consulting on an Income Tax Self-Assessment reform, which would prompt landlords to pay taxes due more quickly. At present, landlords have six months to notify HMRC of a tax liability if they’re making money from additional properties but this timeframe may be reduced to something much shorter, possibly one month.

Stamp duty may rise for mixed-tenure purchases
Property investors with one eye on the High Street should plan for a possible SDLT (Stamp Duty Land Tax) hike. The Government wants to change how mixed-tenure purchases – such as a ground floor retail unit with a residential flat above, sold as one transaction – are taxed. Currently, purchasers pay lower commercial rates of SDLT on the entire purchase but the proposed change would see the residential part taxed at the higher residential rate.

5% VAT for developer landlords is available
Landlords who engage in development and conversion work before they let out a property still have access to more flattering rates of VAT. Building work to change a commercial premises into a residential buy-to-let home may attract 5% VAT, while developing student accommodation could see VAT reduced to zero in some cases.

Reduced VAT rates for providers of holiday accommodation ends soon
One of the Government’s pandemic rescue packages saw suppliers of holiday accommodation – including short Airbnb lets – pay a reduced rate of VAT but this benefit ends on 31st March 2022. As of 1st April 2022, the VAT rate will rise from 12.5% to the pre-pandemic standard rate of 20%.

Still find tax taxing?
As buy-to-let and property specialists, we can advise on all matters of lettings, including tax and VAT. Get in touch and we can help you find financial efficiencies and run profitable property investment portfolios.

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Don’t forget your toothbrush holder: the TA10 form explained

There are a multitude of acronyms and abbreviations to get your head around when buying or selling a property. Something you may see in your pile of paperwork are forms with the letters TA at the start.

The TA stands for transaction and these letters come in the form of templates drafted by The Law Society. They are sent out by conveyancing solicitors and estate agents to those involved in the moving process, and one form that every seller will be asked to complete is a TA10.

More commonly known as a ‘fittings and fixtures’ or ‘fittings and contents’ form, a TA10 is completed by the seller so they can clearly identify what’s included in the sale and what is going to be removed.

A TA10 form is largely a tick-box exercise. Once you have filled in details about yourself, your solicitor and your property’s location, the most common fittings are presented as a list with boxes by their side. The seller simply ticks ‘included’ if it’s being left at the property, ‘excluded’ if it’s being taken with them and ‘none’ if the item listed is not relevant to their property.

It’s completely natural to think of fittings and contents as items such as integrated storage, kitchen appliances and built-in furniture. When it comes to a TA10 form, however, even the smallest and sometimes most unconventional of details needs consideration. Be prepared to weigh up whether you’re going to leave your toothbrush holder, loft insulation, dustbins and even your doorbell. Yes, these are all listed on The Law Society’s TA10 template form.

The latter item – the humble doorbell – is actually part of a wider conversation within conveyancing. The Law Society is currently holding a consultation with solicitors on the matter of smart products and connected appliances – items that are increasingly being fitted to homes. These can include smart doorbells, wifi-enabled CCTV and app-controlled central heating systems.

The current TA10 template doesn’t have a smart device section and this may not appear until after The Law Society’s consultation ends on 28th February 2022. Until changes are made, sellers should use the ‘other items’ section at the end of the TA10 form to list any smart devices, being clear on what’s being taken and what is being left. If it’s the latter, the seller should detail how the new occupant can access the service and take over any subscriptions.

There are also boxes for ‘price’ and ‘comments’ against each item on the TA10 form. It is here where a seller can let the buyer know what items are for sale, for how much and if there are any related notes.

Negotiations to purchase items are usually conducted between the buyer and seller directly, or we can mediate, if that’s preferred. It is sometimes possible for the solicitors to negotiate the sale of any items but there may be an additional charge for this service. If a price is agreed and an item is to be bought, both solicitors need informing.

As with all paperwork relating to a property sale or purchase, speed is of the essence if you want to complete without delays. If you are a seller, fill out and return your TA10 form to your solicitor promptly. If you are the buyer, ensure you read through the form upon receipt, flagging up any questions and requests to purchase as soon as you can. We’re here to offer guidance, so get in touch with any TA10 form questions.

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A guide to council tax & property bands

The way we buy and sell homes is forever changing but some things stay the same. The property ‘bands’ that were set more than 30 years ago in 1991 are still used when calculating today’s council tax charges. Expressed as a letter, with A being the least valuable property and H being the most expensive, these bands dictate how much council tax a household should pay.

If you are curious about your property’s band, want to know if it can be changed or whether the bands will alter in the future, read on for our guide to council tax and property bands.

Today’s bands
Let’s start with a little background. Each local authority is free to set their own council tax but they do, in fact, all work to the same set of property bands, as follows:-

A: up to £40,000
B: £40,001 to £52,000
C: £52,001 to £68,000
D: £68,001 to £88,000
E: £88,001 to £120,000
F: £120,001 to £160,000
G: £160,001 to £320,000
H: more than £320,000

When you move into a property, whether owned or rented, it usually falls to the occupant to pay the council tax bill. The money collected by the local authority pays for vital services, such as refuse and rubbish collection, street lighting, emergency services and community assets, such as libraries.

You could be in the wrong band
The job of valuing properties before the council tax’s launch in 1991 was very rushed. In some cases, those responsible for providing the figures simply drove past rows of houses, assigning each property the same band without detailed examination.

The financial commentator, Martin Lewis, estimates that thousands of homes were incorrectly banded and it is possible for occupiers to challenge the band they were given. This process is managed by the Government’s Valuation Office Agency and it can present a successful way of re-banding your property and reducing your council tax bill.

If you are thinking of asking for a band reassessment, be aware of the pitfalls. Quite simply, the Valuation Office Agency may think you aren’t paying enough council tax and your new banding may make your council tax bill more expensive. Alternatively, your band may remain the same.

A new garden room may have an impact
If the recent ‘race for space’ and a greater appreciation of your garden prompted you to add an annexe or a fully habitable outdoor room, this may be taken into account when a band is recalculated.

If the Valuation Office Agency deem your outdoor room to have been ‘constructed or adapted for use as separate living accommodation,’ they are obliged to give it its own property band and, therefore, its own annual bill. It’s worth noting that the use of an annexe or garden room is not taken into account. Instead, an assessor will look at its physical features, such as provisions for cooking, sleeping and washing.

The good news is the ‘Granny Annexe Tax’ was abolished in 2014. This spelt the end for two full-price separate council tax bills – one for the main residence and one for the annexe. Now, at the discretion of the local authority, it’s more likely that a 50% reduction in council tax is applied to the annexe.

There’s no plan to reassess every property
With bands that were generated three decades ago – and a property market where values have soared in that time – there has been speculation that the Government would force a mass reassessment of property bands.

As of January 2022, there is no evidence to suggest such a move is scheduled. With an estimated 23 million domestic dwellings in England, any plan to revalue and re-band properties would take years in the planning and would require huge resources. For now, the current bands look set to stay, unless challenged by the property owner.

If you would like more detailed information on property bands and whether you qualify for a council tax discount, visit the Government’s dedicated webpage. If you would like to know the band and council tax bill for a property we are marketing, please get in touch.

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Levelling up for landlords: your questions answered

Levelling Up the United Kingdom is a new White Paper released by the Government. It’s aim is to bring better opportunities to all, no matter where people live in the UK, and one of the areas it wants to reform is housing.

The White Paper will have an effect on how lettings operates and the standard of rented homes available, so landlords do need to pay attention. In this blog, we answer the most commonly asked questions about Levelling up The UK.

Q. Is the Levelling Up White Paper the same as the Renters’ Reform Bill?
Despite there being some crossover in content, these are two separate entities. The Levelling Up the United Kingdom White Paper does mention many aspects that pertain to lettings but the text also refers to a ‘landmark’ White Paper to be published in spring 2022. This is another document that acts as a prelude to the Renters’ Reform Bill, and it may contain additional changes specifically related to lettings.

Q. What’s happening about evictions?
Talk of banning Section 21 ‘no fault’ evictions has been swirling around the lettings industry for almost two years and the Levelling Up White Paper confirms that this is still the Government’s intention. It is hoped a brand new Section notice will be introduced or an amendment will be made to the existing Section 8 notice in order to protect landlords looking to regain their properties.

Q. Will I have to make improvements to my buy-to-let property?
The Government has announced that it is to consult on a new legally binding Decent Homes Standard in the PRS (private rented sector). Although there are no details of what constitutes ‘decent’, there is already a Government document called A Decent Home for social landlords. Any new Decent Homes Standards for the PRS could be influenced by this. Landlords should expect, by law, to make the upgrades and improvements required to bring their properties up to a new minimum standard for habitation.

Q. What’s being done to stop rogue landlords?
The Government would like to drive bad landlords out of the sector and one way of doing this is to introduce a National Landlord Register. Although there is already a database of rogue landlords, it is only available for use by local authority enforcement professionals. It is thought a National Landlord Register would be open to the public, allowing tenants to identify landlords to avoid.

Q. Will it become easier to buy and sell rented properties?
The Levelling Up White Paper acknowledges that the buying process could be improved. It wants to ensure ‘critical information buyers need to know is available digitally wherever possible from trusted and authenticated sources’. This may pave the way for less paperwork and more online communication, as well as improved central sources of digital information and pre-prepared property details.

Q. When are all the changes coming into effect?
As of 3rd February 2022, no fixed dates for these changes were given. As an illustration, the Renters’ Reform Bill was put forward in 2019 but nothing has been adopted by law or ratified yet. It may take months – years even – to see the full effect of the proposals and in the case of the National Landlord Register, this is a reform that the Government is merely consulting on. We will update landlords after the spring White Paper has been published.

Although it isn’t exactly light reading, you can read the full Levelling Up the United Kingdom White Paper on the Government’s website (there’s also an executive summary for those short on time).

If you think any of the proposed changes will affect your buy-to-let or investment portfolio, get in touch for advice and guidance.